{{1-31-92 p.A-2992}}
[¶5253] In the Matter of James L. Leuthe, individually and as an institution-affiliated party of First Lehigh Bank, Walnutport, Pennsylvania (Insured State Nonmember Bank) FDIC Docket No. 95-15e (11-11-98)
[.1] Prohibition, Removal, or Suspension—Sale and merger of bank, prohibition order modified to allow consummation
Respondent's application to modify the Order against him, including a specific list of activities to be allowed in order to effectuate a sale or merger of the Bank, is granted in part, with caveats and conditions.
[.2] Prohibition, Removal, or Suspension—Institution-affiliated party & controlling shareholder
Because "controlling shareholder" is not defined in the FDI Act,the definition of "control" from other banking laws is taken and includes direct or indirect ownership of 25% or more of any class of voting stock, or 10% of a class of voting stock if no other person owns a greater proportion. These conditions apply to Respondent's modification order.
In the Matter of
JAMES L. LEUTHE,
individually, and as an
institution-affiliated party of
FIRST LEHIGH BANK
WALNUTPORT, PENNSYLVANIA
(Insured State Nonmember Bank)
DECISION AND ORDER GRANTING
APPLICATION OF JAMES L. LEUTHE TO MODIFY ORDER OF PROHIBITION FROM FURTHER PARTICIPATION
FDIC-95-15e
On July 13 and July 24, 1998, James L. Leuthe ("Respondent") through letters ("Application") addressed to the Regional Director of the New York Regional Office of the Federal Deposit Insurance Corporation ("FDIC"), made application to the FDIC for written consent to a modification of the Order of Prohibition from Further Participation ("Order of Prohibition"), issued against Respondent on June 26, 1998, arising from his service at First Lehigh Bank, Walnutport, Pennsylvania (the "Bank"), pursuant to section 8(e)(7)(B) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. §1818(e)(7)(B), and section 8(j) of the FDI Act, 12 U.S.C. §1818(j).
BACKGROUND
On February 13, 1998, Administrative Law Judge Walter J. Alprin ("ALJ") issued a Recommended Decision prohibiting the Respondent from further participation in the banking industry ("Recommended Decision and Order"). On June 26, 1998, the Board of Directors of the FDIC adopted the Recommended Decision and Order and issued, pursuant to section 8(e) of the Act, 12 U.S.C. §1818(e), an Order of Prohibition against the Respondent. The Order of Prohibition, among other things, prohibited the Respondent from participating in any manner in the conduct of the affairs of any financial institution or organization enumerated in section 8(e)(7)(A) of the FDI Act, 12 U.S.C. §1818(e)(7)(A), and from soliciting, procuring, transferring, attempting to transfer, voting or attempting to vote any proxy, consent or authorization with respect to any voting rights in any entity specified in Section 8(e)(7)(A) of the FDI Act, 12 U.S.C. §1818(e)(7)(A), without the prior written approval of the FDIC and the appropriate Federal financial institutions regulatory authority, which in this instance is the Board of Governors of the Federal Reserve System ("Federal Reserve Board"). As of June 11, 1998, the Respondent beneficially owned 942,780 issued and outstanding shares of common stock of First Lehigh Corporation, Walnutport, Pennsylvania (the "Holding Company"), or 46 percent of the total outstanding common stock, and 420,000 or 62 percent of the issued and outstanding shares of Series A preferred stock of First Lehigh Corporation. Each share of Series A preferred stock has voting rights equal to four shares of the Holding Company's common stock.
THE APPLICATION
Respondent's Application herein seeks permission from the FDIC to allow the Respondent to conduct a "list of activities relating to the proposed sale of First Lehigh Corporation stock."
DECISION AND ORDER
Upon review of the record as a whole, the FDIC finds that the Application of the Respondent should be, and hereby is, granted in part and denied in part.
Accordingly, for the limited purposes set forth in the Application, Respondent is permitted to:
1. Vote to authorize the officers and directors of the Bank and the Holding Company to sign appropriate documents in order to effectuate the exchange offer and to sign appropriate merger documents.
2. Vote to approve a plan of consolidation between Patriot Bank Corp., a Delaware corporation, and the Holding Company.
3. Vote on any other corporate structural changes in order to effectuate the exchange offer or the merger as described in the Application.
4. Vote on any other matters required by either Delaware or Pennsylvania state laws in respect to the exchange offer or the merger of the Holding Company with and into Patriot Bank Corp.
5. Exchange (transfer) Respondent's shares in the Holding Company for shares of Patriot Bank Corp.
6. Enter into a Standstill Agreement with Patriot Bank Corp. subject to the prior written approval of the New York Regional Office of the FDIC.
[.1]Respondent should be aware that the granting of his Application is valid through March 31, 1999, and strictly limited to the actions detailed above, as outlined in the Application, and does not constitute consent to engage in any other conduct not specifically authorized by this order which may violate the Order of Prohibition or section 8(e)(7)(A) of the FDI Act, 12 U.S.C. §1818(e)(7)(A). Respondent is further apprised that he must also obtain the approval of the Federal Reserve Board, as required by section 8(e)(7)(B)(ii), 12 U.S.C. §1818(e) (7)(B)(ii), before he may vote or exchange his shares as described above.
[.2]Respondent should also be aware that the Order of Prohibition prohibits him from serving or acting as an institution-affiliated party, which is defined by section 3(u) of the FDI Act, 12 U.S.C. §1813(u), to include a controlling shareholder. Although the term "controlling shareholder" is not defined in the FDI Act, "control" is a well-defined term under existing banking laws. For example, a person may have control if he/she "directly or indirectly . . . owns . . . 25 percent or more of any class of voting . . . [stock] of the . . . [insured depository institution]." 12 C.F.R. §215.2(c)(1)(i). Control has also been defined to include a person who owns "ten percent or more of a class of voting securities of an insured depository institution . . . if . . . no other person . . . own[s] a greater proportion of that class of voting securities." 12 C.F.R. §303.82(b)(2). Thus, the permission granted in item 5 above is limited solely to an exchange which does not result in the Respondent becoming a controlling shareholder of Patriot Bank Corp.
Accordingly, subject to the terms and conditions outlined above, the Application of Respondent is hereby granted in part and denied in part.
Pursuant to delegated authority.
Dated at Washington, D.C. this 11th day of November, 1998.
1 Exhibit No. 1 is Hearn's affidavit attesting to his personal service on February 5, 1998.
2 The certified copy of the Show Cause Order, identifying the Office of Financial Institution Adjudication as the sender, was refused by Respondent and marked by the post office "refused" and "returned to sender." The FDIC's Motion was not returned, and it is reasonable to conclude that it was received by Respondent.
3 This case is clearly distinguishable from Amberg et al. v. FDIC, 934 F.2d 681 (5th Cir. 1991) and Oberstar v. FDIC, 987 F.2d 494 (8th Cir. 1992) in which default judgments were overturned where the courts found the respondents' failure to comply with the FDIC's Rules was merely technical and that the respondents had indicated an intention to contest the charges against them. Here, no intention to comply has been shown by Respondent, and his failure to respond has been deliberate. In such a case, a default order is appropriate.
